Coal-Heavy Utilities Are Changing Course As The New Energy Economy Unfolds

Emissions rise from the Northern Indiana Public Service Co. (NIPSCO) Bailly generating station on the shore of Lake Michigan at dusk in Chesterton, Indiana, U.S., on Wednesday, Oct. 7, 2015. For the second month in a row, natural gas beat coal as the main source of U.S. electricity generation, accounting for 35.2 percent of supplies in August, a government report showed. Photographer: Luke Sharrett/Bloomberg

The marketplace is bruising FirstEnergy Corp.’s competitive businesses and forcing it to pull back and zero-in on its regulated delivery systems where all of its returns are approved by utility commissioners. Other coal-heavy utilities are taking a different tack, however, and investing in the green energy economy.

The choices are nuanced and predicated on each company’s financial position and on its outlook for the future. As for FirstEnergy, it is making this move to avoid a potential bankruptcy of its competitive nuclear and aggregation businesses. Like other "merchant" nuclear businesses, its own can't now compete with cheap natural gas. And its coal units are suffering too, forcing it to write down the value of all those assets by $9.2 billion — plants that the company wants to shed by mid-2018.

“The fact is competitive generation is weighing down the rest of our company, and while we have fought hard, we cannot continue to wait for an upturn,” said Chief Executive Chuck Jones, in a November 2016 conference call.

Complicating the issue is that FirstEnergy has contracted with CSX Corp. and BNSF Railway through 2025 to deliver coal to its plants in Ohio, Pennsylvania and West Virginia. It said that it must break the contracts because the demand for coal has fallen and it has thus closed some plants.

A piece in the Pittsburgh Post-Gazette said that FirstEnergy’s financial difficulties could get a lot worse if arbiters don’t let it off the hook. It goes on to quote Moody’s, which is predicting a “partial award for the rail companies,” noting that a “significant penalty” could cause a bankruptcy.

At the same time, the demand for power has been relatively flat — even as the economy has grown. That has hurt its competitive electric generation and retail businesses.

Instead, FirstEnergy indicates that it will focus mostly on its regulated transmission and distribution assets that operate as monopolies. To that end, utilities, generally, are beefing up their infrastructure; the Edison Electric Institute says that last year utilities invested $121 billion in their wires so as to modernize them. That's double the levels of 10 years earlier.

Critics of FirstEnergy have long said that it ought to invest more in clean energy and they are opposed to having customers pay more to ease the company’s financial plight. “In fact, they are waging an all-out war on clean energy in a last-ditch effort to protect their inefficient, polluting, and unprofitable fleet of coal-fired power plants,” writes Dick Munson, with the Environmental Defense Fund.

While not a surefire bet, other utilities are having success in clean energy markets. Consider: By 2019, the U.S. solar market is expected to resume year-over-year growth across all market segments that include photovoltaic (PV) rooftop and utility scale solar that ties into the centralized grid. And by 2022, 24 states will be home to more than 1,000 megawatts of operating solar PV, up from nine today, says GTM Research and the Solar Energy Industries Association in their U.S. Solar Market Insight 2016 Year-in-Review report.

Southern Co. is seeking to tap into those opportunities by selling and servicing solar panels in its home territory. “We need to let the market decide what is best for customers,” says Tom Fanning, chief executive of Southern, which has long been dependent on coal-fired electricity.

Duke Energy, meanwhile, is shedding coal plants and investing in wind and solar energy. It either contracts for or owns roughly 5,400 megawatts of wind and solar energy and it expects to increase that to 8,000 by 2020. Duke is receiving tax benefits for building such plants while the utilities that buy from it are typically required to do so under their state renewable portfolio mandates.

Grid investments are also central to Duke’s mission. Modernizing those assets and installing automated meters that can notify consumers when demand is spiking is essential to maintaining both rates and reliability. The goal is to increase efficiencies and to make room on the grid for greener electrons. New power plants are less urgent, the company says, because the demand for electricity has been declining, not to mention the move to more on site generation.

And American Electric Power, which is a major coal-burning utility, has plans to develop 8,000 megawatts of wind and solar energy over two decades. It will also spend $15 billion on its infrastructure to help facilitate that goal. “Our vision is to deliver an energy future built on diverse energy resources and an interactive power grid that is more reliable and secure …” Nick Akins, chief executive of AEP wrote on the company website.

While FirstEnergy is getting back to basics and will be focusing on delivering electricity to customers over a regulated grid, other coal-heavy utilities are making calculated bets on wind and solar energy while also modernizing their wires. It’s the new energy economy, where nothing is certain and where each utility must choose its own path.